Understanding the order book: a tool for market analysis

Order book serves as one of the most valuable tools for traders, providing a real-time view of the balance between supply and demand in the market. Through a system displayed as a table with multiple columns, traders can see the live picture of current quotes and order volumes placed by other market participants.

How the order book is formed and what it shows

The order book, or market depth, arises from the market’s ability to maintain relative price stability even during large transactions. The structure of the book divides information into several levels: red prices indicate sell offers (ask), while green prices show buy offers (bid).

Each price level is accompanied by two indicators: QTY (the number of contracts at a specific price) and Total (the cumulative number of contracts at this and all previous levels). For example, if the best ask price is $9,881 and the best bid is $9,880.50, the spread between them is only $0.50. This indicates a fairly dense market, and if a trader wants to raise the price to $9,881.50, they would need to buy all 447,535 contracts at the $9,881 level.

The platform offers two modes for viewing order book details: aggregated by 0.5 and by 1. For an expanded view, click the button in the upper right corner of the interface.

Analyzing order volumes: the key to understanding price movements

The main value of the order book lies in its ability to help determine the current market pressure by analyzing the size of placed orders. The larger the volume of buy orders at a certain price level, the higher the likelihood of an upward movement — signaling strong demand. Conversely, large sell volumes often precede price declines, indicating sellers’ intense desire to offload assets.

This information allows traders to orient their strategies: on one hand, they can follow large volumes, assuming institutional players are driving the market; on the other hand, they can look for opposite movements, predicting a reversal point.

Price gaps and their significance for traders

Another important aspect of order book analysis is studying price gaps between adjacent levels. When there is a small difference in price between two neighboring orders, it indicates market density: if a trader cannot execute at the desired price, they can quickly close the trade at a nearby alternative price.

Conversely, significant gaps between price levels suggest a scarcity of offers and may indicate that the market is preparing for more dynamic movement. During periods of high activity, when many trades occur simultaneously, the risk of sharp price fluctuations increases significantly.

Limitations and risks: why the order book does not provide a complete picture

It is important to understand that the order book reflects only a snapshot of the current state of placed but unfilled orders. Traders can cancel their orders at any moment before execution, meaning the picture you see can change in fractions of a second. Relying solely on order book analysis to fully predict market behavior can lead to incorrect decisions.

Therefore, when working with this tool, caution is necessary, and it should be used in conjunction with other analysis methods. Information from the order book works best when combined with technical analysis, volume analysis on charts, and monitoring fundamental factors affecting asset prices.